ADVERTISEMENT

Bank Gross NPAs Could Rise To 9% In FY22, Says Crisil

The two category of borrowers that are likely to drive up bad loans in FY22.

<div class="paragraphs"><p>Indian rupee bank notes in a container at a grocery store, known as a kirana, in Bengaluru. (Photographer: Dhiraj Singh/Bloomberg)</p></div>
Indian rupee bank notes in a container at a grocery store, known as a kirana, in Bengaluru. (Photographer: Dhiraj Singh/Bloomberg)

India's banking system could see bad loans rise up to the level last seen fiscal 2019, with the bulk of these likely coming from retail and small-business borrowers amid the pandemic, according to Crisil Ratings Ltd.

The gross non-performing asset ratio of banks could rise to 8-9% by March 2022, up from 7.5% as of March this year, the rating agency said in a note on Tuesday. The ratio stood at 8.2% as of March 2020 and at 9.1% a year earlier.

“The retail and MSME segments, which together form 40% of bank credit, are expected to see higher accretion of NPAs and stressed assets this time around," said Krishnan Sitharaman, senior director and deputy chief ratings officer at Crisil.

Retail borrowers, after having remained healthy over the last decade, saw stress rise from the Covid-19 pandemic and its impact on incomes. Crisil said the stress is spread across salaried and self-employed customers alike.

While home loans are expected to be the least impacted, unsecured credit will bear most of the brunt.

Despite the government's intervention in the form of the emergency credit-linked guarantee scheme, the MSME (micro, small and medium enterprises) segment will continue to see its asset quality deteriorate, the rating agency said.

It's not just the headline number which will weigh on bank books. Considering that about 2% of the total loans of the banking industry will be under restructuring, stressed assets could rise up to 10-11% this fiscal, Crisil estimates.

Here again, retail and MSME loans will add to this stress.

  • Retail stressed assets are expected to rise from 3% as of March 2021 to 4-5% by March 2022.

  • In the case of MSME loans, the stressed loan portfolio could rise to 17-18% of loans, from 14% last year.

The numbers would have trended even higher but for writeoffs in the unsecured loan segments, Sitharaman said.

The corporate loan segment, which added most of the stress in the last cycle, has shown considerable resilience during the pandemic, the rating agency said. Most of the recognition of stressed loans was done during the asset quality review of the Reserve Bank of India five years ago.

"That, coupled with the secular deleveraging trend, has strengthened the balance sheets of corporates, and enabled them to tide over the pandemic relatively unscathed compared with retail and MSME borrowers," Crisil said.

Considering that only 1% of corporate loans were under restructuring, the stressed asset portfolio for the segment should remain range-bound within 9-10%.